High Frequency Trading – Complexity

Transparent Simplicity has an excellent posting, “The Complexity of High Frequency Trading” which provides an interesting read on the complexities of the market. Rule 610, part of the Cancel Spam problem. Odd Lots – madness that they are not reported to the consolidated tape.

As Themis Trading argues, the new order types are “perks sold to them by the exchanges – including colocation, data feeds, and dubious order types – to make sure that they maximize the number of free shots at a risk free rebate.This means they want to bid and be first in line, and only when they are assured that there are other buyers deep behind them, and collect rebates. If they are successful and buy stock and collect a rebate, they can turn around and instantly sell that stock at the same price to the person behind them, still making a profit. This is not liquidity provision. They game ways to be at the top of the book in stocks that already have the liquidity that serves as a backstop.”